Banking has become increasingly difficult in recent years. Rising interest rates mean banks have to pay more interest to depositors, and many banks have many risky loans on their balance sheets, especially commercial real estate loans.
But big banks have other lines of business that are doing well these days. Like an investment bank.
When a company wants to raise large sums of money by selling stock or issuing bonds, it may bring in someone like Drew Pascarella, who spent 10 years as an investment banker at Citi covering the technology, media and communications sectors. . He currently teaches finance at Cornell University.
He said investment bankers help companies find buyers for these stocks and bonds, helping them buy other companies or get themselves acquired.
“There are many different types, but investment banks will help companies think about merger and acquisition deals and actually influence deals in the marketplace,” Pascarella said.
And we charge a fee to do all of that. But until late last year, investment bankers' calls were pretty quiet.
Steve Biggar, a banking analyst at Argus Research, said businesses had been a little nervous about trading last year. When the economy is uncertain, businesses tend to exit.
“You say, 'We don't want any expansion, maybe now is not the time, we want to see how everything goes with the economy, and are we going to have a soft landing?'” he said. Ta.
Companies also face rising interest rates and increased regulatory scrutiny. But Christina Sauter, a law professor at Southern Methodist University, said companies are now adapting to these challenges.
“They're getting used to it, so they're more likely to make a deal when they feel like they should or have to make a deal,” she says.
On Monday morning, Goldman Sachs reported that its investment banking division's revenue rose 32% last quarter compared to the same period last year.
Gerald Cassidy, a bank analyst at RBC Capital Markets, said this is partly because the economic outlook for this year is more certain than for 2023.
As a result, corporate dealmakers and investment bankers are likely to remain busy. “More companies are planning to go public. There will likely be more mergers and acquisitions this year, which will also increase investment banking fees,” he said.
Put another way, if investment bankers are getting a lot of calls, the economy is probably in pretty good shape, Cassidy said.
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